Commercial real estate prices have more than doubled since the financial crisis lows of 2009, and in many cities the skyline is dotted with construction cranes. Similarly, multi-family housing has been on a tear with rent growth outstripping income growth for most of the current decade, making affordability a political issue. The critical questions professionals will be asking at this quarter’s UCLA Anderson Forecast conference concern whether or not these trends will continue — or if the bull market is over.

All the Anderson economists’ reports will be presented at UCLA Anderson Forecast’s quarterly conference, which features a number of panels focused on commercial real estate and Peter Lowy's keynote address.

The National Forecast

In his Forecast essay for the nation, UCLA Anderson Forecast Director Ed Leamer takes a deep dive into the factors driving the current U.S. economy, one that has been growing steadily at 2% following quarterly growth rates of 3% for the 40 years between 1965 and 2005. Leamer writes that growth since 2010 has been so eerily steady that it is defining an entirely new corridor at 2% instead of 3%. “Something is different, terribly different. What should forecasters be thinking?” Leamer asks. “We are thinking 1.7% real GDP growth in 2016, 2.8% in 2017 and 2.1% in 2018, averaging 2.2, with a strong labor market averaging about 200,000 increases in payrolls per month and a steady unemployment rate around 5%. More of the same, in other words. We are starting to see more evidence of inflation ahead, and are forecasting interest rate increases to keep real rates of interest pretty constant.”

04/08/2016

I have heard so many different, contrasting things about Brazil throughout my life. Growing up on Kauai, I mainly heard about the great waves, beautiful beaches, and cheap bikinis from the Brazilian surfers who visited the islands. When I lived in Peru for a year and a half, most of the business leaders I met had deliberately avoided talking about Brazil, focusing instead on Chile and Argentina, where they spoke the same language and doing business was just “easier.” I also ran into more than a few backpackers who all reported some version of the same story - “When I was in Brazil, these guys robbed me on the street and they took my wallet, passport, and camera, but man, I still had the best time ever!”

I continued to read countless opposing headlines about Brazil. One moment, it’s the “Country of the Future”, the next, there’s an increase in violent crime. Hyperinflation is finally under control, but at various points during the 90s, inflation was over 3,000%. In 2002, President Lula adopted a moderate platform and made significant strides to grow the middle class, but just last month, he was detained and is being investigated on suspicion of corruption. An article in the Economist says, “Since 2003, some 20m Brazilians have emerged from poverty and joined the market economy. These new consumers buy everything from cars to cookers and fridges to flights.” Simultaneously, Brazil ranks as one of the most difficult countries in the world to do business.

I’ve always been curious about the real story. Does Brazil deserve its place among the other BRIC countries (Russia, India, China), or is the “Brazil Cost” still too large? Is it the “Country of the Future” or is that just a pipe dream? What’s really going on in Brazil?

Bzeih spoke at April’s UCLA Anderson Economic Forecast, predicting that a major disruption akin to the leap from invention of the wheel to development of the combustion engine — which took millennia — will occur within the decade. In terms of both software and hardware content, the technology quotient for existing automobiles exceeds that of vehicles used for space travel, which means, Bzeih said, “The recipe for a fully autonomous vehicle is already in the car today.”

Bzeih believes that California — and not only Silicon Valley but just as likely Orange County and other parts of the state — will lead the country in vehicle technology innovation. But the hurdles before launch, he said, include psychological and cultural barriers and the fact that California, Nevada, Michigan and Florida are to date the only states in the union that have passed any laws pertaining to autonomous vehicles.

“The answer is convergence,” Bzeih said, and referenced cyberpunk author William Gibson’s observation that the future is already here, it’s just not very evenly distributed. With the proper vehicle-to-vehicle and vehicle-to-infrastructure communication, and the crucial component of good vehicle-to-human interface, companies like Kia can take driver assistance features (like smart cruise control) to partial automation by 2020 and full automation by 2030 — to which Forecast senior economist Professor Jerry Nickelsburg responded that it would still beat the L.A. Metro’s purple line extension into Westwood.

03/14/2016

Bryan Stockton, former chairman and CEO of Mattel Inc., joined Anderson at the Latin American Business Conference to speak about “the ups and downs and the ups again” of Latin America’s economy.

Stockton served as the chief executive officer of Mattel Inc. from January 1, 2012 through January 25, 2015.He oversaw the day-to-day operations of Mattel, ensuring the success of brands such as Barbie®, HotWheels® and Fisher-Price®. Stockton was specifically appointed to this position to accelerate growth and scale, particularly in Brazil.

“I believe there is tremendous potential to accelerate growth and the possibility to create scale so that the Latin America Region can be as independent and successful as the states in Europe and America,” Stockton said. “We need to be ready for the next economic upswing in this market.”

03/09/2016

Larry Fink (B.A. ’74, ’76), chairman and CEO of BlackRock Inc., was welcomed this week to a conversation with Dean Judy Olian as part of the Dean’s Distinguished Speaker’s Series. The founder of what is now the world’s largest asset management company, with $4.6 trillion in assets under management, shared his insights on the health and risk factors in the world’s largest economies, retirement savings and the responsibilities of corporate boards. His conversation with Olian coincided with his receiving the UCLA Medal from Chancellor Gene Block later the same day.

“For China to ascend further, it needed to really transform its society into a domestic-oriented service economy,” Fink said, noting that China must expand health care and establish an ecosystem for tourism. He pointed out that it’s more affordable for Chinese citizens to vacation abroad in Hong Kong, New York or Los Angeles than in their own country, and carry back goods that are too expensive in their own country — which send trillions of dollars outside China. According to Fink, the world’s second largest economy is shifting rapidly out of low-wage manufacturing and needs a new competitive edge. Most economies, he said, need about 50 years to make the kind of transformation China is aiming for, but China’s trying to do it in 10. Make no mistake: Fink said, “All economies have to go through this transition.”

12/02/2015

UCLA Anderson Distinguished Professor of Decisions, Operations, and Technology Management Uday Karmarkar addressed the December edition of the UCLA Anderson Forecast conference, self-referencing as a humble “tourist” among the gathered economists and followers of the forecast. Forecast Director Edward Leamer introduced him following a discussion of robotics and other forms of automation in the traditional workplace, but said of Karmarkar, “He doesn’t have to worry about robots taking his job anytime soon.”

Karmarkar might himself disagree, observing wryly that “the golden age of education is almost over.” Keeping pace in the information age, he said, means that bundling, brand and presence trump scale. With a background in manufacturing dating to the 1970s and ’80s, Karmarkar made the shift to information-intensive industries during a period of “back-room” industrialization, such as the introduction of sophisticated office equipment.

“Ask yourself how you can industrialize your job,” he said, “because it’s going to happen.”

UCLA Anderson Forecast’s fourth 2015 quarterly economic report for the United States says the Federal Reserve will start to normalize interest rates as its prolonged “zero interest rate” policy reaches its end, with the most recent financial crisis long over and the unemployment rate indicating near full employment. In California, the there is no indication of any slowdowns or declines in the continuing growth of both employment and income in California and, in fact, the employment sector will grow throughout the forecast period.

The National ForecastIn his forecast for the national economy, UCLA Anderson Senior Economist David Shulman cites a paradox in the current employment picture. While October’s 5.0% unemployment rate is essentially the traditional definition of “full employment,” the employment-to-population ratio is 59.3%, four percentage points below the level recorded prior to the start of the financial crisis in 2006. As such, the recovery may not feel like much of a recovery for many Americans. “Nevertheless,” Shulman says, “employment remains healthy, with the economy generating jobs at a 200,000-a-month clip that will bring with it further declines in the unemployment rate to 4.6%.”

The December forecast also says the Federal Reserve “is about to get the inflation it has been waiting for.” As a result, Shulman says, “With the financial emergency long over, the unemployment rate indicating near full employment and the likelihood that inflation will soon approach its 2% target, we expect the Fed to begin normalizing interest rates by increasing the Federal Funds rate this month. … Thus, we forecast that by the end of 2016 the federal funds rate will be about 1.5% and it will approximate 3.25% at the end of 2017.”

11/09/2015

UCLA Anderson to lead study monitoring the effects of a higher minimum wage in Los Angeles

The Regents of the University of California received a $570,000 grant to conduct a study that will evaluate the effects of the higher minimum wage ordinance in the Los Angeles metropolitan region. The research initiative will be led by Edward Leamer, UCLA Anderson School of Management Distinguished Professor, Chauncey J. Medberry Chair in Management and UCLA Anderson Forecast director. Leamer will collaborate with Drs. Till von Wachter and Frederick Zimmerman, faculty members from the Department of Economics and School of Public Health at UCLA, and Jerry Nickelsburg of UCLA Anderson School.

While increases in minimum wages are occurring in many locations, the Los Angeles experiment could be one of the most informative, since the city has an unusually large share of geographically-concentrated low-wage workers, and the legislated increases in the minimum wage are projected to cover a greater fraction of workers here than in any other jurisdiction, and there are abundant locations near the City where jobs might go. The research will study the impact of the local minimum wage increase on a broad set of effects, including wage and employment levels but also product prices and health outcomes.

11/02/2015

In light of Greece’s current debt crisis, Professors Ed Leamer and Sebastian Edwards, hosted a lively discussion over dinner with Anderson and UCLA Law School students on Thursday, October 15.

Edwards, Anderson’s Henry Ford II Chair in International Management, served as the moderator for the evening, addressing topics concerning Greece’s economy, shattered since Wall Street’s implosion in 2008; the potential implications of a Greek exit from the euro currency union and the European Union; the toll the situation has taken on the global financial system and economic overhauls that Portugal, Ireland and Spain have made.

Leamer, Anderson’s Chauncey J. Medberry Professor of Managment as well as director of the UCLA Anderson Forecast, took a trip to Greece last summer with his Global Immersion Program students to better understand the implications of the Greek crisis. Leamer is a big believer in real-world learning. “It’s important to be a creative analytical solver and create knowledge for yourself,” he says. Students enrolled in the course were assigned to create an investment proposal for the distressed Greek economy. “This experiential learning gave students opportunities to be exposed to a tremendous amount of information with practical applications to the business world,” Leamer says.

09/29/2015

Left to right: David Shulman, Jerry Nickelsburg, John C. Williams, Ed Leamer, William Yu

By Paul Feinberg

The UCLA Anderson Forecast sustained an optimistic theme throughout the September edition of its quarterly conference. The positive economic feelings began with the presentation of the national and California forecasts, presented by Forecast Director Ed Leamer and Senior Economist Jerry Nickelsburg respectively, and a keynote address from Dr. John C. Williams, president and CEO, Federal Reserve Bank of San Francisco.

Following the keynote from Williams, real estate became the theme of the day with a set of talks from John Tipton, operating partner of the Law Firm of Allen Matkins; David Shulman, UCLA Anderson Forecast senior economist; and William Yu, UCLA Anderson Forecast economist. After a brief discussion of positive trends in commercial real estate — rooted in across-the-board developer optimism — Tipton spoke of the current Allen Matkins UCLA Multi Family Market Outlook that showed strong developer optimism in every sector. Tipton also noted that low vacancy rates supported the rental rate increases being seen.

Shulman examined the national real estate markets. He and the Forecast economists are predicting that housing starts are “on the road to 1.4 million per year in 2016,” up from 1.14 million in 2015 and just 1 million in 2014. While housing starts will approach 1.5 million, this total remains well below the 2 million starts the nation saw at peak before the last recession.